TY - JOUR
AU - Blanchflower,David G.
AU - Levine,Phillip B.
AU - Zimmerman,David J.
TI - Discrimination in the Small Business Credit Market
JF - National Bureau of Economic Research Working Paper Series
VL - No. 6840
PY - 1998
Y2 - December 1998
DO - 10.3386/w6840
UR - http://www.nber.org/papers/w6840
L1 - http://www.nber.org/papers/w6840.pdf
N1 - Author contact info:
David G. Blanchflower
Bruce V. Rauner Professor of Economics
6106 Rockefeller Hall
Dartmouth College
Hanover, NH 03755-3514
Tel: 603/646-2536
Fax: 603/646-2122
E-Mail: David.G.Blanchflower@Dartmouth.EDU
Phillip B. Levine
Department of Economics
Wellesley College
106 Central Street
Wellesley, MA 02481
Tel: 781/283-2162
Fax: 781/283-2177
E-Mail: plevine@wellesley.edu
David Zimmerman
Department of Economics
Williams College
South Academic Building
24 Hopkins Hall Drive
Williamstown, MA 01267
Tel: 413/597-2192
Fax: 413/597-4045
E-Mail: David.J.Zimmerman@williams.edu
AB - This paper uses data from the 1993 National Survey of Small Business Finances to determine the extent to which minority-owned small businesses face constraints in the credit market beyond those faced by white-owned small businesses. First, we present qualitative evidence indicating that black- and white-owned firms report similar concerns about the factors that may affect their businesses except that blacks are far more likely to report problems with credit availability. Second, we conduct an econometric analysis of loan denial probabilities by race and find that black-owned small businesses are almost three times more likely to have a loan application denied. Even after controlling for the differences in credit-worthiness and other factors that exist between black- and white-owned firms, blacks are still about twice as likely to be denied credit. A series of specification checks indicates that this gap is unlikely to be largely attributed to omitted variable bias. Third, we conduct a similar analysis regarding interest rates charged to approved loans and find black-owned firms pay higher interest rates as well. Finally, even these results are likely to understate differences in credit access because many potential black-owned firms are not in operation due to the lack of credit and those in business may be too afraid to apply. These results indicate that the racial disparity in credit availability is likely caused by discrimination.
ER -